Pending home sales plunge

By Lucia Mutikani

NEW YORK (Reuters) - Pending sales of existing homes plunged by a record 12.2 percent in July, and private employers hired the fewest workers in more than four years in August, according to reports released on Wednesday that point to a weakening economy.

Planned lay-offs at companies surged by 85 percent in August due to turmoil in the subprime mortgage market, another report said.

Together, the data raised expectations of a weak employment report from the government on Friday and added to the view that the U.S. Federal Reserve could lower its overnight benchmark interest rate at its September 18 monetary policy meeting. The author of one of the reports said the weakening employment numbers added slightly to the prospects for recession.

The National Association of Realtors' Pending Home Sales Index, based on contracts signed in July, fell to a reading of 89.9, the lowest since September 2001 when the index stood at 89.8. The association attributed some of the decline to mortgages falling through at the last moment.

The fall, the largest month-over-month decline since the series began in 2001, was much bigger than the 2 percent drop in the index economists were expecting for July and helped paint a bleaker picture of the housing market moving forward.

"The decline in the pending sales index in the past three months has been by far the fastest at any time since the housing market began to slow," said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York. "This is disastrous."

Stocks weakened following the data, with the Standard and Poor's 500 index .SPX and the Dow Jones industrial average .DJI both falling more than 1 percent in early afternoon trade. The dollar tumbled, falling about 1 percent against the yen and nearly half a percent against the euro. U.S. government bond prices rose sharply sending benchmark yields to five-month lows.

Mortgage market troubles also played a big role in announced lay-offs in August, which rocketed to 79,459 from 42,897 in July, according to Challenger, Gray & Christmas Inc, an employment consulting firm. August's job cuts were the highest since February, when they totaled 84,014.

"Nearly half of the August cuts came from the financial sector, as dozens of mortgage and subprime lenders caved under the pressure of a sinking housing market," Challenger, Gray & Christmas said in a statement.

LABOR MARKET CRACKING

Financial job cuts totaled 35,752 in August, the highest monthly total for the industry since Challenger, Gray & Christmas began tracking in 1993, the firm said.

Separately, a report from ADP and Macroeconomic Advisers LLC showed that U.S. private employers added 38,000 jobs in August, well below the 83,000 that analysts had expected and the slowest rate of growth in four years.

July's private sector job growth was revised downward to 41,000 from the originally reported 48,000 jobs.

"In short, evidence is starting to emerge that the labor market is finally cracking," said Shepherdson.

The ADP figure suggests that Friday's non-farm payrolls report from the U.S. Labor Department will show about 60,000 jobs were created in August, Joel Prakken, chairman of Macroeconomic Advisers said. That would be just over half the 110,000 jobs a Reuters poll showed as the median forecast rise for that month.